First & Second Quarter Conditional Grant, Capital Expenditure & Spending by Treasuries: hearings

NCOP Finance

06 November 2007
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

6 November 2007

Mr T Ralane (ANC, Free State)

Documents handed out:
Provincial Budgets & Expenditure as at 30 September 2007
National Treasury Press Release 05 November 2007
Summary: Conditional Grants Expenditure
KZN MEC for Finance and Economic Development
Eastern Cape Province 2007/08 Expenditure Report on 2nd Quarter Conditional Grants & Infrastructure
Conditional Grants and Infrastructure Funds Report by North West Province
Limpopo Provincial Treasury
Free State Projected Provincial Budget Outcome of Conditional Grants as at 30 September 2007
Provincial Treasury Western Cape
Eastern Cape Report on Conditional Grants [Part 1][Part 2]
Audit Findings & Action Plan – Eastern Cape
Gauteng Provincial Government: Infrastructure and Conditional Grants Financial & non-financial report [Part 1][Part 2][Part 3]

Audio recording of meeting

The Committee acknowledged the effort of all the departments but emphasised that there was still a lot of work to be done by every department. Of particular concern to the members were the problems of vacancies and lack of capacity that the members felt was an excuse that the departments within the provinces used to avoid accountability in their expenditure patterns. It was requested that in the next period reports, the Committee hear about the improvements done in this regard and not that it they remained challenges.

The use of suspense accounts raised some serious concern. The Committee felt that National Treasury should be engaged to assist in overcoming this problem that every province faces but to different effects. The chairperson requested that the Provincial treasuries think about the issue and then provide feedback to the Committee. Members would also be active in trying to alleviate this by maintaining continuous monitoring.

While under-expenditure was a big problem, it was highlighted that over-expenditure was also just as important to monitor. The members requested further engagement with the North-West Province because their presentation was not fully comprehensive.

KwaZulu-Natal Treasury presentation

Mr Leslie Magagula (Senior General Manager: Resource Management – KwaZulu-Natal Treasury) made a presentation about the performance of his province. He said that there had been a vast improvement in education capital expenditure. Transport had a good delivery mechanism so he was not particularly concerned about the expenditure trend of 38.6%. Education spent R428million or 41.4% of the budget. There was however under expenditure of R39million in this sector mainly on machinery & equipment due to control measures to identify savings to utilise in other critical areas. Health expenditure amounted to R592million of the budget, which saw an over expenditure of R142million relating to anticipated rollover of revitalisation and forensic pathology service grants.

Transport was the largest capex budget representing 44.7% of provincial capex budget. Projected over expenditure of R90 million was in respect of agricultural projects such as Mushrooms Base and Software for the province-wide monitoring and evaluation system within Office of the Premier. In terms of Conditional Grants, there were four grants where expenditure had been less than 25% of the budget. The first grant is the Comprehensive Agricultural Support Grant (CASP) at 14%. This was due to the NDA not transferring the grant because according to them, the provincial department had not played by the rules of the game. This matter was followed up accordingly and Treasury is still waiting response from the NDA. The second grant, which had spending under 25%, was the Land Care Programme, which was at 19%. The department has however put together a High Performance Team to improve service delivery in the department, which will also have impact on the conditional grant spending. Third was the HIV and AIDS (life skills education) grant that showed an expenditure of 12%. Mr Magagula said that expenditure was historically lower for the first half of the year and projected to be fully spent by year-end.

Mr D Botha (ANC) (Limpopo) asked what the political commitment was for provinces when there is under or over spending. He also commented that the province could have as many meetings as they pleased but asked what they were doing in the interim and whether they had any timeframes.

Dr Z Mkhize (KZN MEC for Finance & Economic Development) responded that political accountability was the day-to-day duty of the MEC. He said that the PFMA had given the responsibility to the accounting officer in terms of expenditure that limited treasury’s ability to act. He had held discussions with the Auditor-General in this regard. Treasury has meetings with executives from all departments where they set targets that they wanted to achieve at year-end. Therefore ultimate responsibility rested with line departments and treasury.

Mr E Sogoni (ANC) (Gauteng) said that he did not understand why there was over expenditure on the side of personnel. He said that the roads expenditure in KZN worried him because it was reported to be at 38% but there was over-expenditure planned. He asked how this over- expenditure was going to be achieved. He said that in future, with respect to planning, the department should know what they were planning on doing because they were dealing with MTEF now. Mr Sogoni then said that the Committee appreciated the challenges that agriculture are experiencing but hoped that very soon plans will be put in place so that agriculture could start running because agriculture was important for the province.

Dr Mkhize said that the issue of figures in education was quite a difficult one to comment on because it was quite difficult to say how many teachers they had in all the schools. With respect to MTEF and planning, Dr Mkhize responded that there was a phobia that departments would be reluctant to make a commitment on money that they did not have, he however agreed that it needed to be dealt with. Lastly, he responded to the question about agriculture saying that he agreed that the delays needed to be prevented. The problem however was that to get correct leadership in the department, all the outstanding cases of people that had been suspended had got to be dealt with.

Mr B Mkhaliphi (ANC Mpumalanga) commented that he would find it helpful if he were told not only about the amount of transfer done but also where it was expended on.

Dr Mkhize responded that they needed guidance about the amount of information needed by the Committee but on the other hand he agreed that they Provincial Treasury needed to disclose what the money was buying. He said that it is not about the amount of money being spent delivering better service compared to other countries, but rather about the different types of systems.

Mr J Mnchunu (IFP) commented that there should be increased co-operation between the departments in addressing the problem of HIV/AIDS orphans and getting food through Nutrition Programmes. Children must be taught to help themselves.

Dr Mkhize responded that they wanted the Nutrition Programme to be aligned to activities within the communities where the communities can help themselves. He said that they want the feeding programme to be a skills building program for businesses and agriculturalists.

The chairperson said that the Committee welcomed KZN Treasury’s intervention on agriculture and said that the Committee would monitor progress in that regard. He requested that treasury monitor over-spending projections and make them tighter. He highlighted that with respect to travel expenditure, invoices investigation is a very important matter that they treasury needed to focus on. He then thanked the MEC and his team for the report.

Eastern Cape Treasury presentation
Mr Billy Nel (MEC for Finance – Eastern Cape) made a presentation about expenditure trends in the Eastern Cape saying that the vacancy rate had decreased from 60% three years ago to 17% in the current year. He said that there was still a debate about the morale of public servants in the Eastern Cape but they were pleased to see that workers were moving from other provinces to seek work in the Eastern Cape. He raised concern that the suspense accounts in the departments were being used to hide information and do strange things. The Provincial Education Department had undergone restructuring with the appointment of the new MEC. The challenge in most departments was to find people with financial capacity because they went to corporate companies. The budget in the Eastern Cape is at R31.4 billion with conditional grants amounting to R3.7 billion and infrastructure to R3.8 billion.

Mr Qonda Kalimashe (Senior General Manager: Eastern Cape Province Treasury) continued the presentation saying that in the 1st Quarter expenditure stood at R429 million against projections of R749.7 million. There was slight recovery in Quarter 2 expenditure with actual spending standing at R822.2 million against projections of R599.7 million. Infrastructure on a month-to-month basis increased from R3.1 billion in 2006/07 to R3.8 billion in the current financial year. Under expenditure amount equalled R404.8 million with the bulk of this total (R240.2 million) relating to the Department of Education under-spending.

The Department of Sport recorded the highest expenditure at 56%, followed by Roads & Transport at 47%, Health at 42%, Public Works at 28%, Agriculture at 31%, Social Development 29%, Education 19% and Housing 18%. Through the comprehensive HIV/AIDS grant, the Department of Health managed to put 3196 HIV infected new clients on the ART programme (38 Hospitals, 10 CHC’s and 1 Correctional Service) and 29103 patients accessing home based care services.

Mr Kalimashe said that the main reason for under-expenditure in Integrated Housing and Human Settlement Grant included, among other things, poor project management by emerging contactors and protracted decisions making processes within the municipalities with respect to land ownership and availability issues as a well as municipal procurement processes that frustrated delivery.

Mr M Robertson (ANC Eastern Cape) said that housing spent 9% but R500 million was withdrawn and that R900 million went missing in the Schools’ Nutrition Programme. He sought clarity on these issues.

Mr Mkhaliphi asked what the basis of keeping a CFO in that position was if he/she cannot perform because the under and/or over spending is not addressed and it forms the crux of his job overview.

Mr Nel (Eastern Cape MEC) responded that some departments had no CFOs, for example the Provincial Department of Education but those posts had now been filled. He said that a forensic audit was done around the Schools’ Nutrition Programme and restructuring was happening under the new MEC.

Mr E Sogoni (ANC Gauteng) said that Provincial Treasury must read and enforce S18(1)(c) on the PFMA, which read as follows: “Provincial Treasury must promote and enforce transparency & effective management.” He then said that he was curious about the service provider that the MEC said that Housing has employed in order to service the 22 municipalities that were experiencing problems. Mr Sogoni then asked what the suspense accounts were. He lastly requested that treasury give an explanation of the fact that projected amount to be spent in the period April to September was R1.4million but actual expenditure was R1.2milion

Mr Nel responded that the service provider was going to conduct a study on the municipalities and propose ways of overcoming the challenges faced.

Mr M Fraser (Senior General Manager – Eastern Cape Provincial Treasury) explained that the suspense account is a holding account. For example Health is the biggest user of transport that is outsourced. In order for health to pay within 7 days, they are unable to analyse and amount of R30 million in 7 days. So they pay using the suspense account of that transaction and then do reconciliations accordingly.

Mr T Ralane (ANC) said that the problem with suspense accounts was that they must receive the Committee’s urgent attention. He then requested that Eastern Cape Treasury go back and handle the issue of the suspense account. He commented on transport saying that he had heard people complaining about the amount of time it took to obtain an ambulance and that was not good. Under the heading “Projections,” he said that the province was breaking even in every department. This was good but he requested the province to monitor it very closely. He then added that Health, Public Works and Education needed focus.

Mr D Botha (ANC) (Limpopo) requested that the MEC include his overview of the Eastern Cape’s presentation as part of the hard copy distributed to members so that Committee members can use such information to engage municipalities.

Mr T Ralane (ANC) said that the MIG was growing for weaker municipalities and Provincial Treasury should go back and verify that the 22 municipalities would be ready when funding was available.

Mr E Sogoni (ANC Gauteng) said that there are municipalities that had not signed in the Eastern but had received money. He then requested that Provincial Treasury consult National Treasury to assist those municipalities.

The chairperson responded that the Committee would rather have municipalities account themselves but the Committee trusted that National Treasury was working with them.

North-West Treasury presentation
Mr G Paul (HOD: North-West Treasury) opened his presentation by saying that the Conditional Grant budget was R2 billion for the 2007/08 financial year. Expenditure on the Conditional Grants equalled 44% of approved budget, which is a mere 6% short of the estimated 50%. Expenditure on Infrastructure funds equalled 43% of approved budget, which is 7% short of the estimated 50%. However, based on the funds transferred in terms of Division of Revenue Act the province spent 92%

The chairperson stopped the presentation stating that he had a problem with the province’s report. He said that North-West Treasury had developed pockets of development funds. For example, R67 950 000 had been allocated to Department of Economic Development and yet nothing had been spent in that department. He then said that the infrastructure funds that were shown indicated that there was an element of overlapping. He added that these were issues that should be raised with sector departments however the Committee addressed Provincial Treasury because they were the ones that allowed those issues to happen. He concluded by saying that he believed that the Committee needed to have a bigger discussion outside of the meeting.

Gauteng Ttreasury presentation
Mr Ndoda Biyela (Director Public Finance – Gauteng Treasury) said that the total allocation to infrastructure amounted to R5 billion which is about 13.6% of total provincial budget. This amount excludes an appropriation for Gautrain of which R13 billion has been spent. Of the total infrastructure budget allocation, the major contributors are department of Housing at 42%, Department of Public Transport, Roads & Works at 22%, the Department of Health at 20% and the Department of Education at 12%. These departments would be expected to lead spending to achieve government’s strategic social and economic infrastructure priorities.

The highest allocation of funds towards maintenance of infrastructure projects is reported by the Department of Public Works, Roads & Transport being an amount of R269.9 million. The lowest amount was reported by the Department of Agriculture, Conservation and Environment, which was an amount of R1.1 million. The Department of Health reported the largest capex projects, which included the Chris Hani Baragwanath Hospital Phase 1 with anticipated completion being May 2008. An amount of R352 million has predominantly been expended on rehabilitation and maintenance works for 152 schools.

The Department of Housing reported the highest expenditure of R903.4 million for this period. The major portion of the amount expended by the Department of Public Transport, Roads & Works has been expended on projects that are geared towards the operational and expansion works on major routes M1, R24, R21, N12 and N1 to ensure traffic efficiencies for 2010 events.

On of the challenges faced by the Gauteng Provincial Treasury is that whilst some projects are moving at an acceptable pace, other large scale capex projects are moving at a sluggish pace and are being plagued by operational, procurement and reporting difficulties.

Mr T Ralane (ANC) asked why the Provincial Infrastructure Grant was spread across so many departments and no reporting was done there.

Ms Nomfundo Tshabalala (HOD: Gauteng Treasury) responded that Gauteng Treasury allocations to the three departments was part of the report that they sent to National Treasury. The main basis of allocation was DORA which is 40% Education, 40% Transport and 20% to Health. They however took into account spending trends - where they saw that Education was under-spending they allocated the amount to Health. She said that they were however going back to DORA.

Ms D Robinson (DA) requested that the hard copy of the presentation given by Gauteng should be numbered the next time as the document they handed out made it difficult to make page references. She then raised concerns about the low spending on agriculture, sport and recreation. Also, Ms Robinson said that they could not allow for slower spending in lower education levels because these are the critical stages for children. She requested that the department focus on education and libraries.

The chairperson said that he believed that again the problem of Gauteng was not using the Division of Revenue Act and the PFMA. He requested that they go and look at it in the first Quarter and delay the suspense accounts too. He said that the Provincial Department of Public Works seemed to be in ICU and his concern was that this was a critical department.

Limpopo Treasury presentation
Mr Rob Tooley (HOD – Limpopo Treasury) said that there was no improvement on conditional grants spending when comparing 2005/06 & 2006/07 as departments spent the same percentage. Overall capital spending is low at 27.7%. Departments of Agriculture 11%, Health 38%, Transport 20% and Housing 23%, demonstrated poor spending patterns. The Provincial Treasury is constantly supporting departments in implementing the business plans by having “bilaterals” and assisting departments to recruit skilled and capable staff.

Reasons for under-spending by departments included Agriculture: CASP – poor planning and late appointment of service providers, Housing: IHSRP – late announcement of subsidy quantum leading to delay in contracting developers, Education: NSNP – the public sector strike in June affected the feeding schemes, Libraries: New Conditional Grant – planning posed a big challenge and delays in the procurement processes. Health: Forensic Pathology – delay in the appointment of Forensic Pathology Services staff. Posts have already been advertised and would be filled in the third quarter.

Western Cape Treasury presentation
Mr Harry Malila (HOD: Public Finance) opened the presentation saying Agriculture Disaster Management Grant under-spending relates to funds for floods and for drought claimed by farmers which were allocated during the 2006/07 Adjustments Budget.. Forensic Pathology Services Grant under-spending was due to upgrading/building of forensic pathology mortuaries that commenced in the 2007/08 financial years and the slow filing of posts was due to shortage of specialised candidates.

Integrated housing and Human Settlement Development Grant under-spending of R226 million was mainly due to the R372 million earmarked for the N2 Gateway Project in the 2006/07 Adjustments Budget. Provincial Infrastructure Grant under-spending was mainly due to disaster relief funding received via the Provincial Infrastructure Grant (PIG) in the Adjusted Budget R45.3 million.

The community library services grant is a new grant for 2007/08 and the measurable outputs include appointment of qualified staff and increased access to library users. Spending on the grant will mostly take the form of transfer payments to municipalities and commenced in the latter part of the first half of 2007/08, which is the first quarter of the municipal financial year.

Concluding remarks by Chairperson
The chairperson suggested that there be more meetings of this kind in future and the departments who were not interrogated, think about how they were going to deal with issues of under and over expenditure and overcoming the problem of suspense accounts as well.

The meeting was adjourned.


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